from the innovation-must-die dept

We've noted how frequently the entertainment industry -- especially the big record labels with the help of the RIAA -- seem to sue innovative upstarts. They usually do this as part of a two-part plan: they either want to kill off the innovation, or they use the lawsuit as the opening gambit in trying to get a big chunk of the equity of the startup (which they then stifle and kill). News broke recently that online music storage locker MP3Tunes, one of the first of its kind, filed for bankruptcy in large part due to the years-long legal attacks from EMI. The thing is, MP3Tunes basically won its case, showing that the basic service was completely legal. In fact, what MP3Tunes provides is basically the same service that Amazon and Google now offer with their music lockers. MP3Tunes was one of the pioneers in the space... and for its troubles, it gets sued into bankruptcy, despite being legal.

We keep hearing people insist that the record labels are adapting. And it's true that they've been pulled, kicking and screaming, into parts of the 21st century. But the second that anyone comes along doing anything remotely interesting and which provides real value, they freak out and sue. And it goes beyond that. As Robertson describes in his blog post about this, EMI apparently went to great lengths to destroy MP3Tunes, even if it was legitimate:

At every opportunity EMI dragged out the legal process making it costly and burdensome. One example is the interrogation of company employees in all-day inquisitions called depositions where attorneys try to trick people into making admissions. In our case, they deposed not just management but nearly everyone in the company all the way down to clerical help and customer support personnel. They even paid $25,000 to get an ex-employee to agree to a deposition. For management they deposed everyone - some multiple times with me getting deposed 3 separate times.

The legal pressure was not just confined within MP3tunes. EMI sent legal demands to existing partners and potential partners were told they could not work with MP3tunes or risk losing their license to sell EMI music. More than one digital company told us they wanted to work with us, but were prohibited from doing so by EMI. They used their government-granted copyright monopoly to get MP3tunes blackballed in the industry.

EMI spent an estimated $10 million dollars with multiple law firms to arm their attack against MP3tunes in an attempt to thwart unlicensed personal lockers. They know it's difficult if not impossible for startups to fight long costly legal battles. Their hope is that the startup cannot fund a protracted legal battle and they win by default. This happened with the music search engine Seeqpod, Muxtape, Favtape and many others that have quietly faded away. They know that even if the digital upstart prevails in court, they will be terminally weakened. Veoh won multiple rounds of their copyright battle outright only to be forced into bankruptcy after spending $7 million on legal bills.

As Robertson notes, fighting the legal battle was one thing, but blocking the company from partnering and building out its business was the really deadly part. Robertson, of course, has been outspoken in his criticism of the RIAA over the years, and has been through previous legal battles with them as well. In part, some of EMI's infatuation with this case appeared to be personally vindictive (they sued Robertson directly as well as the company). Whether or not MP3Tunes could have succeeded may be an open question. But it seems clear that the company had no chance at all given the barriers that EMI put in its place. Of course, during this same period we've witnessed the collapse and sale of EMI (in pieces) as well. Perhaps, instead of suing the innovations that would help move it into a modern digital era, it should have been looking for ways to embrace them.

from the what-a-legacy dept

We've noted that Kodak, as its business prospects have continued to dim, has become much more aggressive in suing over patents. This is a traditional path for failing legacy businesses. When you're young, you innovate. When you're old, decrepit and tied to an outdated technology/mode of business... you litigate (and legislate). However, with the valuation of patent portfolios rocketing up over the last year (see Nortel & Motorola for examples), there have been rumors for a long time that the best thing Kodak could do for its investors (if not the general public or the economy) is to give up the ghost and sell off its patents to the highest bidder. And, that appears to be the plan. Lots of reports are claiming that the company is about to declare bankruptcy to make it possible to sell those patents. Apparently some potential buyers were worried about how there might be problems buying the patents without a bankruptcy:

Some potential bidders for the patents are wary of proceeding because a purchase may amount to a so-called fraudulent transfer if Kodak is insolvent, said the people, who asked not to be named because the talks are private. Kodak confirmed that it hired Jones Day to advise it on considering options and said it doesn’t plan to seek bankruptcy protection.

While that article quotes someone at Kodak saying no decision has been made, other reports suggests that it's only a matter of when, not "if." I have no doubt that Kodak's patents will sell for quite a bit. Having seen what happened with Nortel, it wouldn't be surprising to see a similar insane bidding war, in which various tech companies feel compelled to waste a ton of money that could have gone towards actually innovating and developing cool new products, to buy these patents to lump into a portfolio either to protect against other patent suits, or to use aggressively against other companies. I fail to see how any of this helps innovation in any way. It seems to reward failure.

“I always knew Righthaven would file bankruptcy if things got rough,” Kincannon told me by e-mail. “They
were set up as a limited liability company just so they could do that. Fortunately, Stephens Media, MediaNews Group, Sherman Frederick, Steve Gibson, and Dickinson Wright all seem to have plenty of money.”

Of course, Righthaven, being a limited liability company, may make that more difficult. And as awful a company as I think Righthaven has been, I'm a bit wary of breaking down the walls of a limited liability company. If it can be shown that Righthaven was set up by folks knowing that the effort was fraudulent, and that the sole purpose of Righthaven was to protect those who knew that what they were doing was illegal, that may open the window for pursuing other parties further. But, if they honestly believed that this was a legit operation and setup, I'm really not convinced that the pursuit should go beyond Righthaven -- especially to folks like Steve Gibson. I could see going after Stephens Media and MediaNews Group as one could argue they were really the driving forces behind the lawsuits. But taking on individuals seems like going too far.

from the blip dept

Big tech companies never completely fade away. At some point, they get acquired for pennies. But, even so, SGI is one of the "big names" that really came about as close to simply fading away as any I can remember. Just this past weekend, I got into a discussion with someone who asked if SGI was even around any more... and just like that, comes the news that SGI filed for bankruptcy protection (yet again) just as it announced that it's being acquired by Rackable for just $25 million. For a company that was once considered a massive darling of Silicon Valley, it's quite a quiet ending. At least the company didn't go into full-on patent litigation as it had threatened to do a couple years ago...

from the shut-'em-down dept

The record labels' animosity towards Seeqpod has never made much sense. Seeqpod is a basic search engine that seeks out music files online. Some of these files are, undoubtedly, unauthorized copies, but Seeqpod has always been focused on streaming the music rather than letting you download the tracks. Seeqpod, itself, has no way of knowing whether the tracks are illegal or not, just as a search on Google using "filetype:mp3" doesn't distinguish between illegal and legal files. Yet, of course, the major record labels have decided that there can be no innovation without the record labels owning a piece of it, and so both Warner Music and EMI (two labels, by the way that have been the loudest in insisting that they've changed and are no longer anti-innovation) sued Seeqpod for daring to run a search engine.

And, now, thanks to mounting legal bills, the company has filed for Chapter 11 bankruptcy protection, and is cutting off some developers who were using its API. It seems like yet another example of the major record labels stamping out innovation through lawsuits. Of course, others will rise in their place (most likely in foreign countries where it's harder for the labels to sue). But, it's pretty sad that the labels have been so successful in using questionable lawsuits to make sure that no one can innovate without their stamp of approval.

from the it's-what-happens dept

It's common to point to "buggy whip" makers as an example of a business that was eventually (mostly) destroyed by a new technology -- though, to be fair, the buggy whip makers were secondary victims. It was the horse-carriage industry that was knocked out by automobiles. The buggy whips were a second order casualty. The same thing may now be happening with newsprint paper makers. While newspapers are struggling left and right, one of the major newsprint suppliers is now struggling to avoid bankruptcy as well.

from the kill-two-birds dept

In discussing the troubled satellite radio business, we noted that two of the major difficulties faced by the industry were the huge capital costs required to build and maintain the business, combined with the rise of (somewhat unexpected) competition in the form of internet radio and internet downloads combined with portable MP3 players like the iPod. Over at Slate, Farhad Manjoo has a suggestion that would solve both of those issues: Sirius XM should ditch the satellites and become a web only broadcaster. It's an interesting idea, but it seems unlikely (even though they offer online streams currently). Sirius XM still remains so car focused, it still thinks that being in automobiles is a competitive advantage. However, as Manjoo points out, it's actually damaging the company, because it's had to pay large sums to automakers to get the devices installed in cars. Instead, if it went to an internet-only solution, and cut the subscription prices, it could reach a much larger audience, much more easily and cheaply. Build mobile apps, and people can use their phones to listen to content. Add downloadable podcasts of popular shows, and anyone with a portable device can time shift. It's so reasonable that it'll never happen.

from the possibly,-but-it-had-help dept

Back in 1999, when plans for satellite radio were first talked about, I thought it was destined to fail. I had two reasons for why: I didn't think there really was that much demand and having just closely watched the disaster known as Iridium, I was intimately familiar with the massive and business-strangling capital costs associated with running a satellite-based business. It just seemed so capital intensive that any underestimate in terms of demand would kill you. And, in fact, Sirius has a pretty long history of being on the verge of failure.

With the news of Sirius XM preparing for bankruptcy, it's worth revisiting those original thoughts. While I'd love to claim credit for calling this a decade ago -- I think my reasoning turned out to be wrong. I vastly underestimated the number of folks willing to sign up for satellite radio (though, I think I was correct in recognizing that the number of subscribers would need to be massive and that would be difficult to achieve). And, while the capital expenditure costs were large, it seems like they, by themselves, may have been imaginable. What I hadn't fully expected, was the massive expenses the companies (now company) would ring up trying to lock up "talent" to drive subscriber numbers up. Also, I didn't expect ridiculous regulatory restrictions. The 18 months it took federal regulators to approve the merger between XM and Sirius, combined with the ridiculous restrictions that were put on the combined company significantly contributed to satellite radio's troubles. And, finally, additional competition in the form of internet radio and podcasts/portable media really have put pressure on satellite radio -- none of which I foresaw at the time.

While the company is clearly looking to restructure and keep going, you have to wonder if it even makes sense at this point. With those alternatives increasingly becoming popular in the market, it's difficult to see how satellite radio can possibly provide enough excess value to pay for the increased capital costs compared to the competition. Even if the company restructures and comes out of bankruptcy, who's willing to bet it will have to through this whole process again in a few years?

from the if-it's-on-the-internet-it-must-be-true dept

Shares of United Airlines' stock tumbled nearly 75% on Monday after an old 2002 report about a United Airlines bankruptcy filing was picked up and circulated as current. How did this happen? Apparently, a staffer at Income Securities Advisors Inc. did a search for "united bankruptcy 2008" on Google, and found an article on the Sun-Sentinel. Though the article was published in 2002, neither the Googlebot nor the Sun-Sentinel website indicated as much, and the news item was published to Income Securities' page on Bloomberg. Once the story hit the wire, shares plummeted from $12 to as low as $3, and 54 million shares traded hands before Nasdaq halted trading to investigate what was going on. After United issued an official "we're really not bankrupt" statement and the confusion started to lift, shares of United returned to a somewhat normal price.

After all the dust has settled, the finger pointing has now begun. Who is to blame, if anyone? Sure, the Sun-Sentinel published the story on its site with an ambiguous date, but having archived articles on your site isn't a problem. However, they should really make the dates on their articles more obvious, since they apparently have pretty good SEO. As for Google, they are indeed guilty of publishing an inaccurate date, but as we've seen before, their usual recourse is to blame the site for the problem, and, that said, their terms of service clearly state that they are not liable for the accuracy of their data. As for Income Securities and Bloomberg, perhaps they will be more careful next time before they publish stories, or perhaps not. The thing is, mistakes happen (like Bloomberg publishing Steve Jobs' obituary last month) and rumors turn out to be false every day. Income Securities will "pay" for their mistake, since now they will need to earn back the trust of their clients.

For stock traders, timely information translates into moneymaking opportunities. A few decades ago, it would take a few days for the market to react to information (thereby creating a nice opportunity for the shrewd trader). Today, the speed with which information travels (and the market reacts) has increased considerably, as is clearly illustrated by this event. Sure, shares of United are still trading at approximately 10% less than its opening price on Monday, but perhaps that's more a reflection of the fact that a chapter 11 filing would not come as a surprise to anyone at this time. So, it appears that, in actuality, it's pointless to assign blame, since there doesn't seem to be a problem -- the system worked just as it should.

from the gotta-learn-financial-planning-somehow dept

Textually points us to a report in Australia claiming that more teenagers these days are declaring bankruptcy and it's because they're racking up huge mobile phone bills that they weren't expecting. It's the type of story that certainly sounds plausible -- after all, we know that mobile phones are popular with kids, and every once in a while you hear about ridiculous phone bills. It isn't hard to put it together and think that there are some irresponsible or careless kids who need to declare bankruptcy because of these bills. However, the article doesn't provide any evidence that this is really happening. The single source providing the info is a gov't bureaucrat, talking about a study done by the government, which found that many young people didn't know how to deal with high bills -- which is quite different from proof that they're declaring bankruptcy. She does claim that financial counseling services are seeing an increase in young people seeking to declare bankruptcy, but the article doesn't talk to any such service or get any numbers on bankruptcies among young people (or even seek to find out that, if there are such bankruptcy, how many are due to high mobile phone bills). That's not to say it's not happening. After all, the story sounds like one that is plausible to many people. It just would have been nice to have seen a little more concrete evidence, rather than offhand conjecture reported as fact.